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April 2, 2012 - The Future of Managed Futures; Hedge Fund Manager Pay Drops; A Fresh Look at Commodity Funds

April 2, 2012 by Ron Sebonia   Comments (0)

Observations - Statistics - Commentary

CTA Expo New York, April 19, 2012, NYMEX Building
CTA EXPO was created to help professional capital raisers and allocators identify futures trading talent and to promote investing in managed futures. In just over three years CTA EXPO has grown to offering one day conferences in New York, London, Chicago and Miami. Registrations have grown for our conference in Chicago from 140 in 2008 to 500 in 2011. View the program here:
http://jlne.ws/HfvlGl
**DA: CTA Expo NY has officially sold out. Frank and Bucky invite you to attend the London event June 28, Chicago on September 13, and, new this year, Miami on December 13.

Taking a Fresh Look at Equity Commodity Funds
Morningstar
Investors' interest in commodities has exploded over the past 10 years. Whether they're looking for diversification, an inflation hedge, or to speculate on rising prices, investors have plowed hundreds of billions of dollars into commodity-related offerings, both mutual funds and exchange-traded funds. A decade ago, commodity-related funds (at that time, only the open-end equity energy, precious metals, and natural resources categories existed) held just $10 billion in assets. Today, after gold has soared to $1,650 an ounce from $300 and oil has gone from less than $30 per barrel to north of $100, total assets in ETFs and open-end commodity-related funds hit an astonishing $320 billion in February.
http://jlne.ws/H9zSfd
**DA: "Three pipelines to commodity exposure" highlighted.

Quote of the Day

"Managed futures don’t work when there are no trends, or when the trends reverse really quickly, and that’s what happened last year …. Most managed-futures funds didn’t see a positive return in 2011 because trends reversed all of a sudden, in multiple asset classes.”

Morningstar’s Nadia Papagiannis in Marketwatch article "Managed-futures fund rides diversification trend."

Managed Futures Scorecard 4/2/2012
Newedge Indices MTD Return YTD Return
Newedge CTA Index -1.86% -0.43%
Newedge CTA Trend Sub-Index -2.18% 0.36%
Newedge Trend Indicator -1.95% -1.36%
Newedge Short-Term Traders Index -1.00% -2.19%
Barclay Indices MTD Return YTD Return
Barclay CTA Index 0.96%
Barclay UCITS Index 6.50%
Barclay Hedge Fund Index 4.35% 10.07%
BTOP FX Index 0.68%
Morningstar Long/Short Com. Index 0.41% 2.26%

Lead Stories

The Future Of Managed Futures
FINalternatives
Managed futures as an asset class has long been touted for generating the holy grail of all investment strategies: uncorrelated returns. The professional money managers known as commodity trading advisors who make up this roughly 30-year-old industry invest long and short across a wide variety of markets, trading strategies and time periods. But while managed futures have performed well over the past decade, there have been significant differences between the returns of individual CTAs.
http://jlne.ws/HQgXkw
**DA: Good primer on the spectrum of managed futures offerings and differences among managers and strategies. Finishes with a "look ahead" for the industry.

Managed-futures fund rides diversification trend
MarketWatch
The recent financial and economic crises have undoubtedly left investors wary of the stock market, and funds like Altegris Managed Futures Strategy Fund (MFTAX) are taking advantage of the public's desire to hedge their bets. Alternatives firm Altegris Advisors launched its managed-futures mutual fund in August 2010, and it has already garnered $1.1 billion in assets. The six hedge-fund managers the fund uses dabble in stock-index, commodity, currency and interest-rate futures, diversifying their investments even within each asset class to minimize the volatility of the fund.
http://jlne.ws/HfMI5g
**DA: If you have not seen our recent video interview with Altegris, view it here:
http://jlne.ws/wtHElV

Hedge Funds Attract $3.25B In February
FINalternatives
Convertible arbitrage and managed futures strategies saw the largest asset inflows on a percentage basis in February, at 0.97% and 0.64%, respectively, from January 2012. Directional strategies, such as long/short equity, generated positive returns for the second month in a row. Managers noted that the market appeared to trade more on fundamentals as stock correlations declined and stock prices reacted in line with post earnings announcements.
http://jlne.ws/HFecoo
**DA: Preliminary March data does not look as good. See today's scorecard above.

New Dow Jones Credit Suisse Hedge Fund Index Commentary Offers Insight Into February Hedge Fund Performance
MarketWatch
Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished February up 1.61%; with 9 out of 10 strategies in positive territory. In total, the industry saw estimated inflows of approximately $3.25 billion in February, bringing overall assets under management for the industry to approximately $1.75 trillion; February experience the first month of asset inflows since August 2011;
http://jlne.ws/H95Hjc

Managed Futures/Managed Funds

Pay for Top-Earning U.S. Hedge Fund Managers Falls 35%, AR Says
Bloomberg
Compensation for the highest-paid U.S. hedge-fund managers plunged 35 percent in 2011 to $14.4 billion after the European sovereign debt crisis pushed the industry to its second-worst year ever, a survey showed.
Average pay for the 25 top earners was $576 million last year, down from $883 million in 2010, according to an annual ranking published by AR Magazine. In 2009, the figure stood at $1.1 billion.
http://jlne.ws/HD6oRg
**DA: No surprise: Ray Dalio tops the list; John Paulson falls off the list.

Morgan Stanley Brokerage Managed-Futures Funds Lose 9.5%
Businessweek
Five managed futures funds run by Morgan Stanley Smith Barney, the world’s largest retail brokerage, lost $79.1 million last year as only one was profitable and all faced customer withdrawals. Morgan Stanley Smith Barney Spectrum Select LP, the largest of the five funds by assets, lost $67.9 million and faced $55.2 million in redemptions in 2011, the firm said in a regulatory filing. The fund lost 17.9 percent per unit, according to the filing.
http://jlne.ws/HFrdvn
**DA: Ouch.

Speculators Add To Gold Positions, But Cut Other Metals --CFTC
Forbes
Managed-money accounts returned as buyers, lifting their net-long position to 130,472 contracts. Managed-money accounts added 12,035 gross longs and cut 5,154 gross shorts. Producers cut more gross longs than shorts, increasing their net-short position, while swap dealers cut gross longs and added gross shorts, upping their net-short position.
http://jlne.ws/HFeATK

U.S. Rejoins the Globe, Say Consultants
AllAboutAlpha
A new consultant survey forecasts that investors in the months to come will be looking for opportunities in hedge funds, funds of funds, and non-U.S. stocks, including equity in the emerging markets. The survey indicated, further, that there will be at least a short-term decline in demand for domestic equity and long-duration bonds.
http://jlne.ws/Hi8vd6

Hedge Funds Make Wrong-Way Bets for a Fourth Week: Commodities
Businessweek
Hedge funds wagered the wrong way on commodity prices for a fourth consecutive week, boosting bullish holdings just before reports showing a contraction in manufacturing from China to Europe drove prices lower.
http://jlne.ws/Hb4de8

AHL CEO sees opportunities for CTAs in emerging markets and complementary strategies
Hedge Funds Review
Tim Wong, AHL CEO, says CTAs should look at opportunities offered by emerging markets as long as they keep an eye on liquidity. He also suggests trend followers should look at complementary strategies. Markets such as Brazil, India and China offer commodity trading advisers (CTAs) investment opportunities, according to Tim Wong, CEO of Man AHL. However, traders need to be aware of liquidity constraints and have an exit plan in place in case liquidity dries up in these markets.
http://jlne.ws/HBHibx

Pensions & Institutions

Managed futures role in the institutional portfolio
Opalesque
Commonfund has released a new whitepaper entitled Understanding the Managed Futures Strategy and its Role in an Institutional Policy Portfolio. The authors, from Commonfund’s Hedge Fund Strategies Group, apply quantitative techniques to provide a better understanding of the strategy and the drivers of its returns. They also present historical evidence that supports the diversifying role of CTAs in institutional policy portfolios.
http://jlne.ws/H7Mp2d

Too Many Worries or Too Few for Pension Fund Sponsors
AllAboutAlpha
"Risk importance concentration” is a measure of the extent to which pension plan sponsors concentrate on a narrow range of risk items, rather than paying equal heed to every potential worry. A new study by MetLife, a global provider of annuities, employee benefits plans, and insurance, raises by implication the question whether an increase in concentration is, under present circumstances, good or bad. After all, it is the fox you aren’t watching that is stealing your hens.
http://jlne.ws/H9k22P

Mexico pension funds to diversify with commodities
MarketWatch
The ability of Mexican pension funds to invest in commodities is an important step in the market's development, as the funds' investments are highly concentrated in Mexico, a portfolio manager for one of the country's largest pension funds said Thursday. Recent regulatory changes will permit the funds, known as Afores, to invest between 5% and 10% of their portfolios in commodity-linked securities.
http://jlne.ws/H9dspa

Low Rates Put U.S. Company Pension Deficits at Record
Real Time Economics - WSJ
Paltry interest rates and lackluster returns on investments pushed deficits at U.S. public company pension plans to a record last year–$326.8 billion as of the end of 2011, or $94.7 billion more than year-end 2010–according to a study by consultancy Milliman. The plans’ shortfall–20 cents on every dollar owed to retirees–is the worst in the 12-year history of Milliman’s study and will have to be made up by companies either contributing extra cash or generating more income on their investment portfolios.
http://jlne.ws/Hb5jqt
**DA: The Law of Unintended Consequences is alive and well. The equity rally is built upon zero interest rates. The diversified portfolio will be hard pressed to hit return thresholds sufficient to meet payout demands.

Pension Funds Making Alternative Bets Struggle to Keep Up
NYTimes.com
Fees for the $242 billion in California’s giant state pension system, known as Calpers, nearly doubled, to more than $1 billion a year, after it increased its holdings in private assets and hedge funds to 26 percent of its total in 2010, from 16 percent in 2006. Calpers, which has earned 3.4 percent annually over the last five years, is pushing the managers of the funds for lower fees as well as reducing the number of outside managers it uses to try to bring costs down.
http://jlne.ws/HG9GTH
**DA: From the article: "Heads of pension funds across the country feel trapped. Lower-risk bonds, like 10-year Treasury notes with a yield of around 2 percent, simply will not fill the gaps many systems face between what they have and what they owe retirees."

The hunt for yield – fixed income panel
Professional Pensions
The panelists discuss if pension schemes should be upping their allocation to fixed income, the ramifications of the budget and the 100-year bond
http://jlne.ws/H9fhCE

Regulation

Jobs Bill Could Make Hedge Funds More Mainstream
HedgeFund Net
Could hedge funds show up in a future TV commercial? That may be possible when President Barack Obama is scheduled to sign the Jobs Act next month, according to the Wall Street Journal .
http://jlne.ws/H9WVlg

AIFMD developments leaves lobbyists "deflated"
Hedge Fund Manager
Europe’s regulatory hardliners look set to win out in the battle for the Alternative Investment Fund Managers Directive (AIFMD), with hedge fund industry lobbyists left “deflated” by the EU Commission’s decision earlier this week to reinsert many of the document’s stricter provisions, Brussels sources have said.
http://jlne.ws/H4Fsf3
**DA: At issue are the stricter calculations of AUM and leverage, and increased liability at the depository level. Once again, it is the U.K against continental Europe. According to UK MEP Syed Samall, "The meeting was conducted almost entirely in French, with no English interpretation provided." Read on:

Hedge fund fury at Brussels directive
Telegraph
They are irate that hard-won compromises over the contentious Alternative Investment Fund Managers Directive appear to have been ditched by the EC, potentially damaging their business and preventing US and Asian fund managers accessing European investors.
http://jlne.ws/HQtULb
**DA: from the article: UK and Netherlands see it as "a massive power grab" by the EC.

Dodd-Frank takes its toll on the buy-side
thetradenews.com
It was a banner week for the Commodity Futures Trading Commission (CFTC) last week with another three rules passed in its long journey towards total implementation of the weighty Dodd–Frank Act. Of chief importance to the buy-side, the CFTC adopted new rules preventing dealers and their clients using a controversial standardised clearing system proposed last June by the International Swaps and Derivatives Association (ISDA) and the Futures Industry Association (FIA)
http://jlne.ws/Hg9Gt9
**DA: For more on CFTC rulemakings, visit MarketsReformWiki

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Blog Post: FinanceClippings: Pension fund risky bets fail to pay off.

April 2, 2012 by MoneyScience   Comments (0)

Pension Funds are increasingly chasing risky bets to try to hit return targets.   These investments are frequently highly illiquid, expensive, and as it turns out, not that high returning. The shocking quote: The $26.3 billion Pennsylvania State Employees’ Retirement System has more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.The system paid about $1.35 billion in management fees in the last five...

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Blog Post: FinanceClippings: Boomerang (book)

April 2, 2012 by MoneyScience   Comments (0)

I'm currently reading Michael Lewis' book "Boomerang - travels in the new third world".   This is an excellent and very amusing discussion of what went wrong in Iceland, Greece and Ireland (and others).  It's not a detailed macroeconomic exposition, but if you want a fun and relevant read, I recommend it.

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Blog Post: TalesfromaTradingDesk: Will Single Dealer Platforms Follow Tradeo?

April 2, 2012 by MoneyScience   Comments (0)

Over the last n years we’ve seen a big increase in the number of available Single Dealer Platforms (SDP). Now with Tradeo’s social feature set, will we see SDP follow suite – some SDP’s already have a subset of Tradeo’s social features:read more...

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